Rick Wilkinson
OGJ Correspondent
MELBOURNE, Feb. 2 -- Sydney-based Oil Search Ltd. has abandoned it's $8 billion (Aus.) Papua New Guinea-Queensland gas pipeline project, maintaining that costs and returns are no longer attractive when compared with other options such as LNG or petrochemical plants in the country.
"The world has caught up with and passed the [Papua New Guinea-Queensland] pipeline project with new opportunities that offer higher value," said Peter Botten, Oil Search managing director.
The announcement comes despite the company's note in its Dec. 6, 2006, quarterly report released earlier this week that the project was still economically viable.
While not backing away from that statement, Botten said that alternative development options that were not present 2 years ago are now demonstrably more attractive and cannot be ignored.
He conceded that part of the problem for a line to Australia is that gas prices in eastern Australia are too low. They are at a significant discount to world prices.
"There is an effective cap on gas prices in the eastern Australian market because of the abundance of coal which offers the ability to switch power sources."
Botten added that Oil Search's preferred option for gas commercialization in Papua New Guinea is LNG.
The company is likely to participate in an ExxonMobil Corp.-led LNG development that would use feedstock from the Hides and Angore gas fields. This could be linked with gas from the Kutubu and Juha fields to establish a major LNG project. Also the Kutubu-Juha gas could be used for a separate LNG project led by BG Group, which is currently considering a 3-4 million tonne/day facility.
Another alternative for Kutubu-Juha gas is a petrochemical project, however the petrochemical plants also could be supplied from fields such as Barikewa and Kimu.
These proposals are over and above the InterOil-Merrill Lynch Commodities proposals to build LNG and petrochemical plants in Port Moresby based on gas from InterOil's recent Elk discovery to the east of the Kutubu fields.
Oil Search expects to make a decision on how to develop its fields by midyear.